5 July 2019
Facebook announcement of its intention to launch a digital currency, ‘Libra’, could be the start of legitimising cryptocurrencies into a form that is a significant shift away from that of the current Bitcoin and its derivatives.
The notorious rollercoaster ride of digital currency since its inception is accepted as par for the course for those with unfaltering belief in its true decentralised form. As is the fact that it is favoured by the criminal fraternity and open to abuse. However, Facebook’s Libra could turn digital currency into the mainstream and be accepted for everyday use, drawing on its 2.4bn global users to use their new currency for financial transactions, just as they use Facebook platforms for other digital services.
Libra may not be a true cryptocurrency with blockchain technology at its heart, but moving to a digital currency that is fully backed by a basket of government-issued currencies (fiat currency) provides a key missing ingredient of other cryptocurrencies – asset security.
The waiting is perhaps over for Big Tech to enter and disrupt the financial system, as digital money systems spread in a global digital online world. However, the dream of a utopian, fully-open, transparent and frictionless currency cannot possibly happen, can it?
If Facebook tries to sidestep banking regulations, it may create its own black hole. Whereas in the past, having uplifting ‘do-gooder ambitions’ and the slogans to match might have led to control of the market, this simply will not wash anymore. There is distrust of excessive power being held by a few private tech companies, and regulators will not be hoodwinked as easily as they have been in the past over vacuous promises on data use and tech they simply didn’t understand.
The level of scrutiny will be high
Incumbent financial institutions and sovereign states cannot afford to have ever more powerful ‘Tech Nations’ with undue monetary influence emerging. Any parallel currency can undermine the sovereign institutions that need to exert fiscal control, especially in times of financial excess or famine. The potential to create systemic risks that limit the ability of central banks to operate normal monetary policy under a regulated market cannot be brushed aside.
Facebook may have 27 partners, including the major payment providers Visa, Mastercard and PayPal, global telecoms provider Vodafone and other tech titans such as Uber and eBay, and banks flirting with the idea, but it is perhaps the billions of users which will determine the future of Libra – us!
People like convenience, anything that is quick and easy, and offering a low-cost payment system across-borders, without bank oversight, even better. China is already leading the way with mobile payment systems. Once Libra is out of the box, will any anti-trust, political or regulatory resistance simply be too late? Or will it be kept in line?
Let the battle commence!
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